Commentary: Undertakings for underwriters

In July last year Lloyd's of London set up its own insurance company to help distressed underwriting members close their books and leave the market, should they wish. But, with a capacity of pounds 50m, a year the company - CentreWrite - has been slow to take off since it is too small to achieve its objective.

Holman Wade, the insurance broker, is proposing to use CentreWrite as a parking space for business it wishes to place within Lloyd's, providing the estate of a member of Lloyd's with automatic unlimited cover against underwriting losses after death.

Holman Wade has used CentreWrite because Lloyd's underwriters have no indication of how much capacity they are likely to have for 1993. Once they do, Holman Wade will channel the risks into the market from CentreWrite to Lloyd's syndicates.

There is nothing wrong in this pragmatic approach to short-term capacity problems at Lloyd's, providing the implications are carefully assessed. As CentreWrite is capitalised and funded by the entire membership of Lloyd's, there is a risk in this approach that members may see opportunities to mutualise their risks at the expense of other members within the community.

Earlier this year in a Lloyd's internal report it was suggested that CentreWrite should provide cover for members' estates after their death, along the lines proposed by Holman Wade. This should not be allowed to lead towards a mutualisation of past and future losses throughout the market, unless it is seen to be done on a commercial basis.